Real estate portfolios – the case for globally diversified core property funds

Publication Date04 November 2019
Pages82-86
DOIhttps://doi.org/10.1108/JPIF-09-2019-0123
AuthorArvydas Jadevicius
SubjectProperty management & built environment,Real estate & property,Property valuation & finance
Real estate portfolios the case
for globally diversified core
property funds
Arvydas Jadevicius
Independent Researcher, Amsterdam, The Netherlands
Abstract
Purpose The purpose of this paper is to build a case for globally diversified core real estate funds portfolio.
Design/methodology/approach It uses Monte Carlo simulation technique to construct synthetic real
estate funds portfolios.
Findings Benefit of maintaining globally diversified real estate funds portfolio merits admission.
An optimal portfolio has an almost even split between Europe, USA and Asia Pacific, ceteris paribus.
Likewise, currency effect for Europe domiciled investors is undeniable.
Practical implications The overall estimates suggest that a blend of APAC, European and US allocations
enhance portfolio risk return profile.
Originality/value The study adds additional evidence on the contested issue of real estate diversification.
Keywords Diversified, Funds, Global, Investments, Portfolio, Real estate
Paper type Conceptual paper
100,000 years ago homosapiens inhabited the earth by moving from its cradle in Africa and
populating Eurasia and the rest of the continents (Harari, 2015). One may argue that the
wise manalready appreciated benefits of diversification. Early humans fled East Africa
circa 13575 ka that was plagued by mega droughtsof MIS 5 in search for a more
habitable terrains (Rito et al., 2013). Since then, short and long distance travels became a
never ending pursuit for humans. This endeavour translated into a global exchange of
goods, ideas and services (Krugman, 1992). Likewise, allocation of capital escaped the
confines of geography with the benefits of having global portfolios being well documented.
Interestingly, however, despite advantages associated with globally diversified real
estate portfolio, investors still tend to retain domestically oriented real estate allocations
(ANREV/INREV/PREA). Trustees behave defensively citing currency effect, taxation and
access to reliable industry information as the main culprits when considering overseas real
estate investments.
With regards to non-listed real estate investment, organisations including ANREV, INREV,
NCREIF and PREA significantly improved access to data, professionalism and best practices
across the sector. This made the non-listed real estate a more reachable and attractive asset class
to investors. Likewise, since its humble beginnings two decades ago, non-listed real estate has
gone from strength to strength to become a major real estate investment conduit. According to
the latest ANREV/INREV/NCREIF Fund Manager Survey estimates (ANREV/INREV/NCREIF,
2018), non-listed real estate vehicles, which include funds, separate accounts, joint ventures, club
deals, funds of funds and debt products, comprise the largest share, 82.9 per cent (2.3 trillion) of
the 2.8 trillion global real estate assets under management. This universe offers investors
plethora of opportunities to access real estate market. Available menu of vehicles enable LPs to
access different sectors and regions, thus supporting thesis for global real estate allocations.
Journal of Property Investment &
Finance
Vol. 38 No. 1, 2020
pp. 82-86
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-09-2019-0123
Received 19 September 2019
Revised 25 September 2019
Accepted 28 September 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
Disclaimer: this manuscript was prepared by the author in his personal capacity. All views and
opinions expressed in this manuscript are those of the author and should not be regarded as repre-
senting the views or opinions of institution he represents.
The author would like to thank anonymous reviewer as well as Noud Bouwens, Robert Lie, Ferry
Vos and Gijs Hermens for their editorial that greatly improved this manuscript.
82
JPIF
38,1

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